UNITED STATES of America, Appellant and Cross-Appellee, v. ATLANTIC COAST LINE RAILROAD COMPANY, Appellee and Cross-Appellant, and Mary Lou Mintz, Appellee, 237 F.2d 137

PARKER, Chief Judge. These are cross appeals in an action brought by the United States to enforce a claim under

section 12(

o) of the Railroad Unemployment Insurance Act, 45 U. S.C.A. § 362(o). One Mary Lou Mintz, an employee of the Atlantic Coast Line Railroad Company, sustained injuries while in the service of the company. Pursuant to the provisions of the act she was paid the sum of $1105 by the Railroad Retirement Board on account of physical disability resulting from such injuries.

She subsequently instituted suit against the railroad to recover damages on account of the injuries; and notice was duly given the railroad of the Board’s claim to reimbursement under the act and of the duty of the railroad to withhold payment in protection of such claim. Thereafter she recovered judgment in the sum of $41,340, which the railroad paid into court without notice to the court of the Board’s claim under the statute and without taking any steps to protect the Board’s interest.

This action was thereupon instituted in behalf of the United States against the railroad to recover the amount of its claim and Miss Mintz was impleaded by the railroad as a third party defendant, whereupon the complaint of the United States was amended to ask judgment against her, as well as against the railroad. The court entered judgment against Miss Mintz and the railroad, jointly and severally, for the amount of the claim but, upon a holding that Miss Mintz was primarily liable, provided that the judgment should be enforced against the railroad only in the event collection could not be enforced against her.

The railroad has appealed from the judgment. The United States has appealed from the requirement that the judgment be dhforeed against the railroad only in the event that it cannot be collected from Miss Mintz. She has not appealed. There can be no question but that judgment was properly entered against the railroad, as well as against Miss Mintz, for the amount of the claim. The statute provides: “(

o) Benefits payable to an employee with respect to days of sickness shall be payable regardless of the liability of any person to pay damages for such infirmity. The Board shall be entitled to reimbursement from any sum or damages paid or payable to such employee or other person through suit, compromise, settlement, judgment, or otherwise on account of any liability (other than a liability under a health, sickness, accident, or similar insurance policy) based upon such infirmity, to the extent that it will have paid or will pay benefits for days of sickness resulting from such infirmity.

Upon notice to the person against whom such right or claim exists or is asserted, the Board shall have a lien upon such right or claim, any judgment obtained thereunder, and any sum or damages paid under such right or claim, to the extent of the amount to which the Board is entitled by way of reimbursement.” The Board had a right under the statute to reimbursement for the amount paid Miss Mintz from any sum or sums payable to her on account of her injuries.

When notice was given the railroad of ' the Board’s claim, a lien was created by express provision of the statute upon her claim against the railroad and the judgment obtained thereunder. The effect of the notice, as we held with respect to notice under the tax lien statute, was to create a “statutory attachment and garnishment in which the service of notice provided by statute takes the place of the court process in the ordinary garnishment proceeding.” United States v. Eiland, 4 Cir., 223 F.2d 118, 121.

When the railroad paid in full the judgment obtained %y Miss Mintz without taking steps to protect the Board’s claim of which it had notice, it became liable, just as a garnishee would be liable who made payment to the debtor in disregard of garnishment proceedings. See 5 Am.Jur. pp. 15-16. Directly in point in sustaining the liability of the railroad here are the decisions in United States v. Luquire Funeral Chapel, 5 Cir., 199 F.2d 429, and United States v. Hall, D.C., 116 F.Supp. 47.

The railroad contends that because North Carolina General Statutes, § 1-239 authorizes a party against whom a judgment is rendered to pay the whole or any part thereof to the clerk, it was absolved by such payment from further liability on account of the Board’s claim. The answer is that the judgment was by federal statute made, subject to a lien in favor of the Board.for the amount of its claim and the railroad had knowledge of this lien. It could have protected itself by making payment into court subject to the lien and with timely notice to the Board to intervene and protect its rights, see N.C.

General Statutes, § 1-73, Walker v. Miller, 139 N.C. 448, 52 S.E. 125, 1 L.R.A.,N.S., 157, or by making payment into court of the balance due Miss Mintz with notice that it was holding the amount of the Board’s claim for payment to the Board pursuant to the statutory notice which it had received. There is nothing in the state statute authorizing payment to the clerk which justified the railroad in ignoring the lien on the judgment created by the federal statute, which is the controlling law in the premises. If there is any conflict between its provisions and that of the state statute, the latter must yield.

As was well said by the learned judge below, D.C., 135 F.Supp. 600, 605: “ * * * the Railroad or other tort-feasor to whom notice has been given as required by the Act owes a duty to protect, by reasonable means, the Board’s lien on the claim, judgment or the proceeds therefrom.

If the claim is settled, either out of court or by consent judgment, reasonable protection of -the Board’s lien certainly means withholding the amount due the Board or making other satisfactory arrangements to have the Board’s lien paid .in the course of .settlement. “If the claim is contested and final judgment is rendered on the verdict against the Railroad or other tort-feasor, reasonable protection of the lien would seem to require notice thereof to the Clerk to whom the money is paid, at or before the time of payment, or in the alternative, notice to the Board, prior to payment of the judgment, in sufficient time for the Board to file a motion in the cause or otherwise intervene to protect its lien on the money in the hands of the Clerk.” Coming to the government’s appeal, we think it entirely without substance.

As the judgment can, by its terms, be enforced against the railroad if not collected from Miss Mintz, the government’s appeal presents, at best, nothing more than a barren technicality; and we think that even this technicality is entirely lacking in merit. Since reimbursement under the statute must be made from the damages paid or payable to the employee, and since Miss Mintz has received the full amount of the damages, she should make the payment. Only if collection cannot be made from her, should the railroad be called upon to pay again the damages which it has already paid.

Equitable principles should be applied in enforcing this statute, which in effect creates equitable liens and assignments, just as such principles are applied in cases arising under the bankruptcy act. The government, in its brief, admits that the railroad, if required to pay the judgment, is entitled to the benefit of the equity of subrogation, by way of judgment over against Miss Mintz. We see no reason why, under the circumstances here, it is not entitled also to have the equitable principles of exoneration applied in its behalf in advance of payment. Glades County, Fla. v.

Detroit Fidelity & Surety Co., 5 Cir., 57 F.2d 449, 451-452; Dobie v. Fidelity & Casualty Co. of New York, 95 Wis. 540, 70 N.W. 482, 60 Am.St.Rep. 135; Pomeroy’s Equitable Remedies sec. 919. Where one of two persons liable for a debt has received funds from which the debt should be paid, the other is equitably entitled to have collection made, if possible, from the one who has received the funds. His rights in equity are not to be distinguished from those of a surety for a debt secured by pledge of collateral, as to which see 50 Am.Jur. p. 1072; A.L.I. Restatement Security p. 357, illustration 2.

Whether the equity of the railroad should be worked out by way of subrogation, with recovery over upon payment, or by way of exoneration, with judgment against both parties and with direction that it be enforced first against the party primarily liable, was a matter resting in the sound discretion of the District Judge. Under the circumstances of the case, we think that discretion was properly exercised here, where Miss Mintz had received the fund from which the claim of the Board was payable and presumably had it in hand at the time. Affirmed.